NEWS ANALYSIS : Agreement on Trade a Coup for Salinas : Mexico: But leader’s carefully crafted economic program could suffer if U.S. Congress rejects pact.

The Wednesday announcement of a proposed North American Free Trade Agreement is a political coup for President Carlos Salinas de Gortari, who has made an accord the centerpiece of his program to revolutionize Mexico’s economy.

“Above all, the agreement means more jobs and better-paid (ones) for Mexicans,” Salinas said in a televised address from his office at dawn Wednesday. “More capital and investment will come, bringing more job opportunities here, in our country, for our countrymen.”

However, the proposed agreement is expected to do little in the short run to alleviate the most immediate symptoms of Mexico’s economic malaise, such as emigration; it could worsen problems on the border.

Salinas also has exposed his administration’s carefully crafted economic program to a severe test if the U.S. Congress should reject the proposal.

“Of course Salinas has got it when he’s got it, when the agreement is ratified,” said economic analyst Luis Rubio. “But an agreement cements his reforms. It confers credibility and permanence on the reforms. The United States is as big a guarantee as you can get.”

For Mexico, a free trade agreement symbolizes the official death of a nationalistic, state-run economy that was hostile to foreigners. It would commit future administrations to the competitive, free-market reforms that Salinas has implemented over the last four years.

During his address, Salinas emphasized those reforms and the agreement’s role in furthering them.

“Having completed the agreement negotiations, restored growth (and) lowered inflation, we Mexicans have shown that we do what we set out to do, and that renews our confidence in ourselves,” he said. “With that, we have gained respect abroad, where we are seen as a united nation determined to improve ourselves and have a great role in the next century.”

In a globalized economy, the agreement would put Mexico squarely in the world’s largest trade bloc, and, Salinas hopes, in a position to compete with Taiwan, Thailand and other Asian tigers.

Mexico will clearly be the country most affected by the agreement because of its smaller economy and reliance on the U.S. market for nearly three-fourths of its foreign trade.

The agreement is meant to inspire confidence in foreign and national investors--the key to Mexico’s long-term economic stability. Mexico has nearly doubled foreign investment to $5.5 billion in the past two years, largely on the expectation that an agreement would be forthcoming.

The extent to which investors are already counting on the agreement was evident in Wednesday’s modest rise in the Mexican stock market index, less than a 1% gain. Analysts said stock prices have for months reflected the potential that free trade would allow Mexican companies to grow and become more prosperous.

As a result, if the free trade agreement does not take effect, said Mexico City economist Rogelio Ramirez de la O, “it will be a blood bath.”

“Mexico is in this agreement for the investment,” he said. Without an agreement, investment could flow right back out of the country unless other reforms are taken to reassure investors, he said.

While the prospect of an agreement is reassuring to those at the top of the economic ladder, it cannot be expected to provide rapid relief to those on the lower rungs.

Free trade, combined with Mexico’s own agricultural reforms, could push up to 1 million people off the farm and across the border, said Raul Hinojosa-Ojeda, a UCLA assistant professor. It is expected that Mexico will reduce subsidies for domestic corn, which will probably increase imports much faster than is anticipated under the proposed free trade agreement.

Still, Mexico will be bound by the 15-year phase-in for increasing sales to the United States of fruit and vegetables, labor-intensive crops that could provide jobs for displaced corn farmers, he said.

Ofelia Woo, an immigration expert at the Center for Northern Border Studies, a Tijuana-based think tank, cautioned against placing too much emphasis on farm workers, who account for less than 40% of Mexican immigrants.

Slowing immigration will require not just jobs but well-paid jobs that can provide Mexicans a comfortable lifestyle in their own country, she said. “Unless those conditions are met, there will not be a change,” she added.

Even under the best of circumstances, immigration flows are not likely to slow for five years or more after the agreement takes effect, Woo said.

Meantime, the agreement could cause serious social problems on the Mexican border across from California, where there are about 70% of the 60 or so Asian-owned, border assembly plants called maquiladoras .

The agreement’s restrictions on use of foreign parts could destroy the plants, which employ more than 30,000 people, said Tijuana economist Noe Aron Fuentes. “That would have severe social implications,” he said.

“In addition, the Asian plants are the most technologically advanced,” he pointed out.

Conversely, the agreement could push more U.S. and Canadian companies to open plants in Mexico’s border region, which is already overcrowded and short on both workers and water, said Jorge Carrillo, a researcher at the Center for Northern Border Studies.

Mexican environmentalists criticized the agreement’s omission of a strategy to solve environmental and health problems on the border.